What Is Private Mortgage Insurance?
Private mortgage insurance (PMI) is insurance most conventional lenders require when a borrower puts down less than 20%; it protects the lender, not the borrower, if the loan defaults. The borrower pays it, usually monthly, and it matters because it raises the payment until it is cancelled or ends.
Private Mortgage Insurance in plain English
If you put less than 20% down on a conventional loan, the lender usually requires PMI. You pay the premium, but the insurance protects the lender if the loan goes into default.
PMI is not permanent on a conventional loan: it can be cancelled once you have enough equity, and it ends automatically at a set point.
Advanced explanation
Private mortgage insurance protects the lender, not the borrower, on conventional loans with less than 20% equity. Under the Homeowners Protection Act, borrowers can generally request cancellation once the principal balance reaches 80% of the home's original value, and it generally terminates automatically at 78%, subject to payment-history and other conditions.
Formula
Monthly PMI = Loan Amount × Annual PMI Rate ÷ 12- Loan Amount
- The mortgage balance at closing.
- Annual PMI Rate
- The insurer's yearly premium as a percentage of the loan; it depends on LTV, credit score and coverage.
Worked example
A $380,000 loan on a $400,000 home is 95% loan-to-value. If PMI costs 0.5% of the loan a year, that is $1,900 a year, about $158 a month, until the scheduled balance reaches 78% of the original value (about month 135 at 6.5%).
PMI on a 5% down payment
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Price and original value
- $400,000
- Loan
- $380,000 (5% down) at 6.5%, 30 years
- PMI rate (illustrative; set by the insurer)
- 0.5% of the loan a year
| Step | Calculation | Result |
|---|---|---|
| 1. Starting LTV | $380,000 ÷ $400,000 × 100 | 95% |
| 2. Annual PMI | $380,000 × 0.5% | $1,900 |
| 3. Monthly PMI | $1,900 ÷ 12 | $158.33 |
| 4. Month you can ask to cancel (balance at 80% of original value) | scheduled payments only | month 124 |
| 5. Month it ends automatically (78%) | scheduled payments only | month 135 |
Monthly PMI: $158.33. PMI adds about $158 a month. On the scheduled payments alone it can be cancelled on request after about 10 years and ends automatically after about 11 years - sooner if you prepay principal.
What this calculation leaves out
- Actual PMI pricing depends on credit score, LTV and coverage; get the figure from your Loan Estimate.
- Cancellation on request also requires a good payment history and evidence the home has not lost value.
- FHA mortgage insurance (MIP) follows different rules.
Try it: Private Mortgage Insurance with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Loan-to-value and the PMI thresholds
Lenders divide the loan by the lower of the price and the appraised value. Above 80%, a conventional loan usually needs private mortgage insurance.
- Loan-to-value
- 81.01%
- PMI usually required
- Extra cash to reach 80%
- $4,000
- Bigger down payment, smaller loan
- Scheduled payments to 78%
- 3.2 years (38 months)
- When PMI ends automatically
- No PMI (0%-80%)
- PMI usually required (80%-95%) - you are here
- High LTV (95%+)
- 78%: PMI ends automatically (scheduled)
- 80%: PMI can be cancelled on request
- 97%: Common conventional maximum
Show the numbers as a table
| Milestone | Balance | When |
|---|---|---|
| Today | $320,000 | 81.01% |
| 80%: request PMI cancellation | $316,000 | 14 months |
| 78%: PMI ends automatically | $308,100 | 3.2 years (38 months) |
Formula
LTV = Loan amount ÷ Lower of price and appraised value × 100Assumptions
- Conventional loan. FHA mortgage insurance follows different rules.
- Timelines use scheduled payments only; extra payments or a new appraisal can shorten them.
- The 80% and 78% points are from the Homeowners Protection Act (CFPB summary).
Monthly mortgage payment breakdown
What one monthly payment pays for. The loan payment is calculated; taxes, insurance and HOA dues are estimates you should replace with real quotes.
- Financing (calculated)
- $2,455
- Loan of $360,000
- Ownership costs (estimated)
- $550
- Tax, insurance, HOA
- Estimated monthly total
- $3,005
- Includes mortgage insurance
- Principal & interest$2,275
- Mortgage insurance$180
- Property tax (estimate)$400
- Homeowners insurance (estimate)$150
Show the numbers as a table
| Component | Type | Monthly | Yearly |
|---|---|---|---|
| Principal & interest | Financing (calculated) | $2,275 | $27,305 |
| Mortgage insurance | Financing (calculated) | $180 | $2,160 |
| Property tax (estimate) | Ownership (estimate) | $400 | $4,800 |
| Homeowners insurance (estimate) | Ownership (estimate) | $150 | $1,800 |
Formula
Principal & interest = Loan × r ÷ (1 − (1 + r)^−n), r = annual rate ÷ 12, n = years × 12Mortgage insurance = Loan × PMI rate ÷ 12 (conventional loan, under 20% down)Assumptions
- Fixed-rate loan; the rate stays the same for the whole term.
- Mortgage insurance applies to conventional loans with less than 20% down and stops once the loan reaches 78% of the original value.
- Property tax, insurance and HOA dues vary by location and change over time.
Why it matters
PMI makes a small down payment possible, but it is a real monthly cost - about $158 a month on a $380,000 loan at a 0.5% premium - with no benefit to you beyond access to the loan.
What it means for you
Who pays?
The borrower pays the premium, usually monthly with the mortgage payment; some loans use a single upfront premium or lender-paid mortgage insurance built into the rate.
How does it affect my budget?
Add PMI to the monthly payment when comparing down payments; a larger down payment may be worth it if it removes PMI entirely.
Common mistakes
- Waiting for automatic termination instead of requesting cancellation at 80%.
- Assuming FHA mortgage insurance follows the same rules - it does not.
- Ignoring PMI when comparing a 5% and a 20% down payment.
PMI vs. MIP
Private Mortgage Insurance — required on most conventional loans with a down payment below 20%, and can typically be removed once enough equity builds up.
Mortgage Insurance Premium — required on FHA loans as both an upfront and ongoing fee, in most cases regardless of down payment size, and often lasts for the life of the loan.
Compare and common questions
Private Mortgage Insurance: frequently asked questions
When can I remove PMI?
You can ask your servicer to cancel PMI when your balance is scheduled to reach - or you pay it down to - 80% of the home's original value. You need a written request, a good payment history, no second liens, and possibly evidence the value has not fallen.
Does PMI end automatically?
Yes. On most conventional loans, the servicer must end PMI when the balance is scheduled to reach 78% of the original value, as long as you are current on payments.
How much does PMI cost?
It varies by insurer, credit score, LTV and coverage. Your Loan Estimate shows the actual premium; the example on this page uses 0.5% of the loan a year purely for illustration.
Is PMI the same as FHA mortgage insurance?
No. FHA loans charge a mortgage insurance premium (MIP) with an upfront charge and annual premiums under FHA rules, which differ from conventional PMI cancellation rules.
Go deeper
Recommended calculators
Run Private Mortgage Insurance with your own numbers:
Where it fits
- Buying a home, Underwriting: before this, Rate Lock; next, Clear to Close.
More Financing Terms
Recommended next step
Compare the cost of PMI with a larger down payment.
Down payment and PMI calculator →Apply it to a specific property: Monthly ownership analysis.
Sources and review
- What is private mortgage insurance?, Consumer Financial Protection Bureau. Supports: PMI is required on many conventional loans with less than 20% down and protects the lender.
- When can I remove private mortgage insurance (PMI) from my loan?, Consumer Financial Protection Bureau. Supports: Cancellation on request at 80% of original value and automatic termination at 78%, with conditions.
Where this applies: United States (conventional loans). Cancellation rules come from the Homeowners Protection Act, as summarized by the CFPB.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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